Evaluating Your Assets

Evaluating Your Assets

Establishing your portfolio is just the first step in a solid investment plan. The market fluctuates so frequently that there is no guarantee that your portfolio will perform as expected over a given period. The best strategy for managing the volatility in the market is to monitor your investments.

You should evaluate your investments regularly to ensure they are still the right fit for your strategy and that things are still on track to meet your goals. How often you choose to conduct your review is a matter of personal choice. However, it is a good idea to evaluate your portfolio at least annually, so that you can make adjustments and stay on track with your investment goals.

Get Rid of Debt

If you are carrying any amount of debt, you are losing money that you could otherwise invest in your portfolio. Spend time eliminating debt before focusing on your investing goals. Create a list of all of your debt and sort it in order from lowest balance to highest balance or in order from lowest interest rate to highest interest rate.

Depending on your preference, you may choose to pay off the smallest loan first and then focus on the second-smallest loan, as this may encourage you to keep to your strategy. However, it may be a better idea in the long run to focus on paying the loan with the highest interest rate and simply make minimum payments on the others in the meantime.

Continue with this approach until you have paid off all of your debt. If you are carrying high-interest credit card debt, try to negotiate a lower rate. Alternately, you can transfer all of your balances to the card with the lowest interest rate or apply for a balance transfer card. Then, you can focus on pouring any extra money into paying off one card. Be sure to pay more than the minimum amount each month, so that you can make headway on paying down the balance.

Finally, look into debt forgiveness programs and other kinds of debt help that may be available to you. For example, teachers who work in high-risk schools may qualify for loan forgiveness of up to $5,000 on federal loans. Federal, state and local government workers may also be eligible for loan forgiveness depending on the length of their employment.

Reduce Fees

Fees eat away at your portfolio and reduce the amount of money available to invest. There are two types of expenses you may encounter: transaction fees and ongoing fees.

Transaction fees are those you incur for any transaction, such as buying or selling stocks. If you make frequent trades, shop around for an investment firm with the lowest transaction fees. You want the freedom to trade often without worrying about fees eating away at your returns.

An ongoing fee, on the other hand, is a fee you pay on a regular basis, such as for annual operating expenses. The good news is that some fees are negotiable. If you are unhappy with the amount of fees you are paying, try to negotiate with your financial advisor. You could also consider moving your investments to a new firm. However, be sure to consider the tax consequences and the fees you may incur in doing so. You may be required to sell some of your holdings at a loss, thus making the move less desirable.


Stock diversification is about managing risk. When you diversify, you spread your money across a variety of investments so that a downturn in the market does not negatively impact your entire portfolio. Your diversification plan depends on your goals, age and tolerance for risk. The goal of diversification, however, is to avoid having too many funds in one type of stock.

The general rule of thumb is to subtract your age from 110. The difference is the percentage of stocks that you should carry in your portfolio. Thus, if you are 25, you would put 85 percent of your investment money into higher-risk investments like stocks and the remaining 15 percent in lower-risk investments such as bonds or certificates of deposit (CDs). As you age, you should reevaluate these numbers so that you decrease your risk and start to focus on protecting your investments for retirement. In essence, in the early part of life, you will have a large percentage of your portfolio in stocks. The closer you get to retirement, the majority of your portfolio should consist of safer, less volatile investments.

Assess Performance

As you monitor your portfolio for growth, you should also track how well your portfolio is performing compared to well-known benchmarks. A benchmark is simply a group of stocks that represent a specific sector of the market. When selecting a benchmark to make your comparison, you should choose the index that best represents the asset mix in your portfolio.

The Dow Jones Industrial Average tracks the performance of 30 stocks of large companies in the U.S. The S&P 500, on the other hand, tracks the 500 largest U.S. companies by market value. Ideally, your portfolio should be outperforming or in line with your chosen benchmark. If not, you may want to reconsider the asset mix within your portfolio.

Evaluate Income Potential

Consider how you plan to retrieve your money during retirement. The goal is to make your funds readily accessible at various stages of your retirement. As such, you will want to structure your investments so that you can withdraw money as frequently as you need in retirement. You may want monthly income, or you may want yearly income from your investments. The idea is to plan now for how you plan to withdraw your money so that you can do so in the easiest manner possible.

You should have 12 months of living expenses stashed away in a savings account or a money market account that you have quick access to without incurring fees. You will use this money to supplement your income from social security, pension or retirement fund. Beyond that, keep another two or three years’ worth of expenses in short-term bonds. That way, you will earn a return on the money that will not be subject to the more volatile ups and downs of the market.

By Admin